Start Investing In Cryptocurrency: A Guide for Newcomers & Beginners
Cryptocurrency has definitely become a hot topic in the investment world, especially recently. While some people see it as a high-risk gamble, others believe it’s a solid choice for diversifying their investments.
If you’re just starting out with investing in cryptocurrency, remember that it comes with risks, just like any other investment. It’s important to do your homework and get a good grasp of how different cryptocurrencies work before investing in cryptocurrency. Being well-informed will help you make smarter decisions in this exciting but complex area.
What Is Cryptocurrency?
Cryptocurrencies are digital currencies that work outside the control of any single company or government. Unlike traditional money, such as the U.S. dollar, cryptocurrencies aren’t backed by a central authority like the U.S. government.
Instead, they’re managed by a decentralized network of users online. These digital currencies, often referred to as coins or tokens, are secured by encryption and built on blockchain technology.
You can use cryptocurrencies to pay for things online, much like you would with regular money. However, there are fewer merchants that accept crypto than traditional currencies.
When you make a transaction with crypto, a network of computers using blockchain software verifies the payment’s validity. If everything checks out, the transaction goes through.
The blockchain serves as an open digital record, recording every transaction. Miners or validators review and confirm these transactions, and they’re rewarded for their efforts. Once a transaction is confirmed, the recipient can access the funds using a private key, which is a secret code.
Aside from using cryptocurrencies for purchases, many people are investing in cryptocurrency, hoping their value will rise over time, similar to how one might invest in stocks or gold.
Types of Cryptocurrencies
In 2009, Satoshi Nakamoto launched Bitcoin, the first cryptocurrency. Today, Bitcoin stands as the largest cryptocurrency by market cap, exceeding $1 trillion.
The cryptocurrency world has grown immensely since then, with nearly 10,000 different cryptocurrencies now in existence, boasting a combined market cap of over $2 trillion.
Among the most notable cryptocurrencies today are:
Bitcoin (BTC)
Bitcoin, like many cryptocurrencies, operates on a blockchain—a public ledger that everyone can see. To keep transactions secure and prevent fraud, Bitcoin uses a process called proof of work. This involves miners solving complex puzzles to verify each transaction.
Over the last ten years, Bitcoin’s value has skyrocketed. Back in May 2016, a single Bitcoin was worth about $500. By May 2024, the price had surged to over $60,000 per Bitcoin, which is a staggering increase of 11,900%.
Ethereum (ETH)
Alternative cryptocurrencies, or "altcoins," first appeared in 2011, but it was Ethereum's debut in 2015 that really made waves. Ethereum brought altcoins into the spotlight and set off a surge in their popularity. Today, it’s the leading altcoin, with a market value only surpassed by Bitcoin.
Unlike Bitcoin, which is focused on being a decentralized currency, Ethereum operates more like a versatile computer network. It allows people to create and run decentralized applications (DApps) and to set up smart contracts, expanding its use beyond just digital money.
Tether (USDT)
Tether, along with other similar tokens, is known as a stablecoin. What makes stablecoins different from most cryptocurrencies is that their value is tied to something stable, like a government-issued currency. For Tether (USDT), this means its value is pegged to the U.S. dollar.
The idea behind stablecoins is that they have mechanisms in place to keep their value consistent with whatever they’re pegged to, whether that's the U.S. dollar, the euro, or even gold. For Tether, its value is supported by U.S. dollar reserves that match the total amount of USDT in circulation.
Because of this stability, Tether and other stablecoins tend to be less volatile than other cryptocurrencies. This makes them a popular choice for investors who want to avoid the wild price swings often seen with digital assets.
Solana (SOL)
Solana was created to support decentralized finance (DeFi) applications, decentralized apps (DApps), and smart contracts. What sets Solana apart is its innovative approach to transaction processing. It combines proof of stake with proof of history to handle transactions quickly and securely.
The platform runs on its native token, SOL, which fuels its operations and helps manage transactions on the network. This combination of technologies makes Solana a powerful and efficient platform for various blockchain-based applications.
Binance Coin (BNB)
Binance Coin, or BNB, is the cryptocurrency used on Binance, one of the world's leading crypto exchanges. Launched in 2017, BNB originally helped with trading and paying fees on the platform. Since then, it has expanded its uses, including making payments and even booking travel. It’s become a versatile token with a range of functions beyond just trading.
Pros and Cons of Investing in Cryptocurrency
Investing in cryptocurrency has its perks, like decentralization, accessibility, and diversification, but many people are most excited about the potential for big returns.
“The biggest advantage is the chance for high returns. Cryptocurrencies like Bitcoin and Ethereum have shown some of the most impressive gains in their short history,” says R.J. Weiss, CFP, CEO of The Ways to Wealth.
That said, it’s important to remember the risks. Cryptos are known for their wild price swings, and with changing regulations, volatility is likely to stick around. Plus, security can be a concern, as not all crypto projects are trustworthy, and scams do happen.
“Cryptocurrencies are very volatile, so you need to be okay with big ups and downs. Only invest what you can afford to lose,” warns Stephen Rischall, CFP, a partner at Navalign.
While some investors have made a lot of money from crypto, others have lost a lot.
“There’s no such thing as a free ride. The chance for high returns comes with the risk of big losses. Your investment could drop in value, and with the crypto market’s current state, it’s hard to say if future returns will be as steady as those from more traditional assets like gold,” Weiss adds.
What to Consider Before Investing in Cryptocurrency
Before jumping into any investment, including cryptocurrencies, it’s crucial to do your homework. When considering a crypto investment, here are a few key points to keep in mind:
Project Details: Each cryptocurrency comes with its own set of features, goals, and technology. Make sure you understand what each crypto project is about, including how it works and what makes it unique, before investing in cryptocurrency.
Your Risk Profile: Be honest about your comfort with risk and the potential volatility of cryptocurrencies. Prices can fluctuate wildly, so you should be prepared for the possibility of significant drops.
Your Investment Goals: Consider how a crypto investment fits into your overall financial plans. Make sure you're not depending solely on crypto for major life goals like retirement. Diversification and a solid financial plan are essential.
If you’re not quite ready to dive into direct crypto investments, there are other ways to get exposure to the crypto world.
“There are options for indirectly investing in cryptocurrency. Recently, the SEC has approved several spot Bitcoin ETFs that you can buy through a brokerage account,” says Stephen Rischall, CFP. “You can also invest in publicly traded companies involved in the crypto space, such as major exchanges, hardware makers, and service providers.”
How to Invest in Cryptocurrency
For beginners stepping into the world of cryptocurrency, the process of purchasing digital currencies can feel overwhelming. However, you can start your investing in cryptocurrency journey by following a few simple steps:
Pick a Broker or Cryptocurrency Exchange
When it comes to buying Bitcoin and other cryptocurrencies, you generally have two main options: using a broker or a cryptocurrency exchange.
Cryptocurrency brokers, like Robinhood and SoFi, make buying crypto straightforward but may come with higher fees or restrictions on moving your assets off their platform. Some investors choose to keep their coins in crypto wallets provided by these brokers for extra security.
On the other hand, cryptocurrency exchanges such as Coinbase, Gemini, and Binance.US offer more extensive platforms for buying and selling digital currencies. While these exchanges can be a bit overwhelming for beginners, they often provide a range of features and are user-friendly. Keep in mind, though, that they might have higher fees compared to traditional trading platforms. To keep costs down, it’s a good idea to get familiar with these platforms and their fees, especially before or shortly after making your first crypto purchase.
Set Up an Account
Once you’ve chosen a cryptocurrency broker or exchange, the next step is to create an account. This usually involves signing up and verifying your identity through a process called KYC (Know Your Customer). You’ll typically need to provide personal details and upload documents like your driver’s license or passport. In some cases, you might also be asked to submit a photo of yourself or additional forms of identification to complete the process.
Add Funds to Invest
Before you start investing in cryptocurrency, you need to make sure your account has money in it. You can add funds in several ways: by linking your bank account, making a wire transfer, or using a debit or credit card. The time it takes for the money to show up in your account can vary depending on how you deposit it and which broker or exchange you’re using.
If you choose to use a credit card, be aware that this option comes with some risks and extra costs. Credit card companies often treat crypto purchases as cash advances, which can mean higher interest rates and additional fees. When you factor in the fees from both the credit card company and the exchange, you might end up losing up to 10% of your purchase.
Initiate Your Cryptocurrency Transaction
With your account funded, you’re all set to start buying cryptocurrency. Once you’ve picked the cryptocurrency you want to start investing in cryptocurrencies, like Bitcoin (BTC) or Ethereum (ETH), you simply enter its symbol and choose how many coins or fractions of a coin you want to buy.
Most exchanges and brokers allow you to purchase fractions of high-value cryptocurrencies, so you don’t need a large amount of money to get started. This makes it easier for investors with smaller budgets to participate in the market.
How To Keep Your Cryptocurrency Secure
Cryptocurrency exchanges can be targets for theft or hacking, and losing or forgetting your access codes could mean losing your investment. That's why it's essential to keep your cryptocurrencies in a secure storage option.
“In the crypto world, adding extra layers of security is crucial. Enabling two-factor authentication provides an additional safeguard, making it much harder for unauthorized users to access your funds,” says Jeff Rose, CFP, founder of GoodFinancialCents.com.
If you’re buying crypto through a broker, your assets are typically stored in a crypto wallet linked to the exchange. If you're not happy with the exchange’s security or want a more secure option, you can move your assets to a different wallet.
Hot Wallets: These are cryptocurrency wallets that run on internet-connected devices like computers, tablets, or smartphones. They are convenient but come with higher risks since they are always online and more susceptible to theft.
Cold Wallets: These include offline devices like USBs or external hard drives. They offer top-notch security because they’re not connected to the internet, but they come with their own risks. If you lose your keycode or if the device fails, you could lose access to your cryptocurrency permanently.
Keep in mind that transferring your crypto off an exchange might involve a small fee, depending on the exchange and the amount you’re moving.
UFUND: Cryptocurrency Investment Opportunities
UFUND is changing the way we think about investing in cryptocurrency investments by combining advanced technology with practical financial solutions. Using the Polygon blockchain, UFUND makes it easier for businesses and investors to connect directly, cutting out the intermediaries and simplifying the funding process.
Our platform secures transparent transactions and provides investors with exciting opportunities to explore the world of digital assets. By offering various funding options and focusing on ease of use, UFUND is simplifying the process for businesses and investors to navigate and benefit from the growing cryptocurrency market.
Ready to explore new investment horizons with UFUND?
0 Comments